Financial Daily from THE HINDU group of publications
Tuesday, May 28, 2002
Agri-Biz & Commodities
Tea industry demands effective regulatory role by authorities
NEW DELHI, May 27
WITH the Government convening a review meeting of representatives of tea industry comprising growers, traders and big industrial houses on Tuesday, a storm is brewing in the tea cup with major stakeholders demanding a greater regulatory role by the authorities.
Sources in the tea industry, particularly the south Indian tea, have been highlighting the worst plight plaguing the tea industry in various representations to the Government. Tea prices in the auction centres at Kochi, Coonoor and Coimbatore all but collapsed in 1999.
Against an average of Rs 68.79 per kg in 1998, 1999 saw prices plunging to Rs 57.10 per kg, which further slid to Rs 44.10 per in 2000 and to its nadir of Rs 41 per kg in January-March this year. Citing figures from this year Government's Economic Survey, released on the eve of the 2002-03 Union Budget, the sources said a table in the Survey on the annual rate of inflation in the price of essential commodities reveals that while wholesale price of tea in 2000-01 fell by 31.5 per cent, retail price to consumers rose by three per cent.
This apparent paradox in the behaviour of tea prices at wholesale and retail level clearly demonstrates that the consumer pays more but the producer less and that too by a whopping 31.5 per cent. Assuming that demand for tea was declining or even stagnant, consumers would not be forking out a higher price and the fact that retail price has risen by three per cent would firmly establish that the demand for tea has not ebbed but grown.
Various reasons are adduced to the agonisingly poor state of the tea industry ranging from excess production, heavy imports from Sri Lanka and Indonesia and loss of market to soft drinks to incongruity on the rate of growth in the demand for tea and the market stock. But sources said that these are only fig leaves for the huge exploitation of the poor producer and the equally hapless consumer by the traders.
It is in this context that the study commissioned by the Commerce Ministry and the Tea Board and executed by A.F. Ferguson and Co to study the primary marketing of tea has analysed the major deficiencies that prevail in the main system of marketing - auctions. The Ferguson study found the auction system deficient on both fundamental principles and the auction process. The study states that as per the extant rules, it is possible for a buyer to buy his entire requirement of tea without even placing a single bid. The same buyer could also buy his entire annual quantity at the auctions without being physically present even on a single occasion.
The auction process also follows archaic rules developed in a different age, which stymies the seller. In one case, it is shown that direct marketing, bypassing the auction process could increase producer realisation by as much as Rs 4 per kg. The study said that north India is increasingly bypassing the auction system for this purpose. However, it has hedged this suggestion by stating that private sales has one major risk as compared to the auction system, viz., the risk of delayed payment as well as the risk of default.
The Ferguson study emphatically said that the auction system is still perceived by all players in the tea industry as a sound system for the primary marketing of tea and the need of the hour is to beef it up through a host of measures including auction reforms, going digital on the bidding process to get over the glitches of the existing manual "open outcry" auction system and liberalisation of auction organisers.
The sources recalled the auction system received strong regulatory impetus in the early 1980s when the Tea Marketing Control Order (TMCO) was effected in 1984 which among others stipulated that at least 75 per cent of a producer's tea production should be sold through auctions (Clause 17) except for plantation packed tea and bulk tea exports.
Even as the TMCO has been liberalised and not abolished, the Government, through powers vested with the Chairman, Tea Board, could spell out in greater detail measures for a drastic overhaul of the existing rules governing auctions systems so that the producers, both big and small, are not exploited.
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